China Sees U.S. Debt as Lever in Taiwan Dispute

China's military stepped up pressure on the United States on Monday by calling for a government sell-off of U.S. debt securities in retaliation for recent arms sales to Taiwan.

A group of senior Chinese military officers also said in state-controlled media interviews that Beijing's leaders should boost defense spending and expand force deployments in the wake of the Pentagon's announcement last month of a new $6.4 million arms package for the island state claimed by Beijing.

Senior officers from the Chinese National Defense University and Academy of Military Sciences made what some view as an economic warfare threat, something outlined in past military writings.

The comments by Maj. Gen. Zhu Chenghu and Maj. Gen. Luo Yuan and Senior Col. Ke Chunqiao appeared in the state-run Outlook Weekly magazine, part of the Xinhua News Agency, published in Beijing on Monday.

Gen. Luo warned that China could attack the U.S. "by oblique means and stealthy feints," and he called for retaliation for the arms sale.

"For example, we could sanction them using economic means, such as dumping some U.S. government bonds," Gen. Luo said.

"Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counterpunches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease," said Gen. Luo, a researcher at the Academy of Military Sciences.

China holds nearly $800 billion worth of Treasury debt securities. It is not clear what impact selling off some of the securities would have on the struggling U.S. economy. However, analysts say that selling off some bonds could drive up interest rates and disrupt U.S. economic recovery efforts.

At the State Department, spokesman P.J. Crowley dismissed the economic threat as potentially self-defeating. "That would be biting the nose to spite the face," Mr. Crowley said. "The economies of the United States and China are intertwined."

The Chinese military comments, however, reflect the contents of a 1999 book by two Chinese colonels called "Unrestricted Warfare," which called on the Chinese military to adopt unconventional methods and strategy in waging war, specifically both "financial" and "trade" war along with other forms of warfare.

The second officer, Gen. Zhu, said Monday that proposed U.S. arms sales to Taiwan threatens Chinese military bases along the southern coast across the 100-mile Taiwan Strait. "This gives us no choice but to increase defense spending and adjust [military] deployments," said Gen. Zhu, who is with the National Defense University in Beijing.

Gen. Zhu made headlines in 2005 when he told reporters that China would use nuclear weapons to attack U.S. cities if the United States struck China with precision-guided conventional missiles.

The statement raised questions at the time among Pentagon officials over whether China had abandoned its stated policy of not being the first to use nuclear weapons in a conflict.

After the remarks, China's government sought to play down the incident by quietly putting out word to Western journalists that Gen. Zhu had been demoted, a claim accepted by many U.S. China hands but one that was called into question by his comments in the magazine this week.

The military leaders' comments are unusual because tightly controlled state-run media in China normally do not permit such provocative comments directly criticizing the United States to be published.

China's military has no apparent control over the country's financial policies, although the military remains a powerful force in the communist system where ultimate power resides in the Central Military Commission, headed by Chinese President Hu Jintao along with two key generals as deputies.

Pentagon officials have expressed concerns in recent years that China's military may be acting outside its political leadership. They pointed to differing explanations by Chinese military and civilian leaders regarding the secret January 2007 anti-satellite missile test, and a perplexing incident in 2007 when the aircraft carrier USS Kitty Hawk had permission to dock in Hong Kong for Thanksgiving but was turned away by Chinese authorities upon nearing the port.

The last time Chinese officials raised economic threats against the United States was 2007 when two economic officials warned of what some called the "nuclear option" — a campaign of economic threats — meant as a political weapon to counter opposition in Congress to China's currency manipulation that has undermined the U.S. dollar.

The Chinese military officers said China's next defense budget, expected to be made public in February, should reflect Beijing's opposition to the Taiwan arms sale.

"Clearly propose that due to the threat in the Taiwan Sea, we are increasing military spending," Gen. Luo said.

Gen. Luo said China must change its approach to the United States and assert its power. "China's attitude and actions over U.S. weapons sales to Taiwan will be increasingly tough," he said. "That is inevitable with rising national strength."

John Tkacik, a former State Department China specialist, said China's Central Military Commission has the power to order financial measures such as selling U.S. securities, although it is a complex process.

"The Chinese military now believes that China has tremendous economic and financial leverage, especially over the United States, and they are giving fair warning to the world that they will use it when they can," he said.

The Obama administration, like its predecessors, has said U.S. arms sales to Taiwan are authorized under the 1979 Taiwan Relations Act, passed by Congress in the aftermath of the shift in diplomatic recognition from Taiwan to mainland China. The act authorizes sales of defensive arms.

China's government has rejected the U.S. justification, claiming that U.S.-China joint communiques outlining relations call for limiting and eventually ending all arms sales to Taiwan.

China and the United States have clashed in recent weeks on a number of issues in addition to the Taiwan arms sale, including Beijing's opposition to the upcoming meeting between President Obama and the exiled Tibetan Buddhist leader, the Dalai Lama.

Secretary of State Hillary Rodham Clinton also criticized China recently for tightening controls on the Internet, which she suggested was a violation of basic freedom.

The administration also has sought the Chinese government's explanation for the recent computer attack on the Internet giant Google and several other U.S. high-technology firms, suggesting that Beijing was behind the computer intrusions and data theft.

China's military spending has increased sharply over the past decade as part of China's semi-secret military buildup that has involved new deployments of advanced ballistic and cruise missiles, large numbers of new warships and submarines, new advanced fighter bombers and various high-tech weapons ranging from computer network attacks and anti-satellite weapons.

China's military stepped up pressure on the United States on Monday by calling for a government sell-off of U.S. debt securities in retaliation for recent arms sales to Taiwan.
A group of senior Chinese military officers also said in state-controlled media interviews that...